"See no evil"....by Edward Hadas
Central banks' mission: Central bankers are breathing a little easier. Financial markets, which were in a near panic last week, seem to be operating smoothly. But the monetary authorities are in the position of a driver of a car with bad brakes who has managed to avoid a crash. A faulty definition of inflation nearly allowed the financial system to careen out of control. In the future, the bankers should look at trends in asset prices, not just consumer prices.
Past Monday's news is certainly good. The European Central Bank had to offer more the market some liquidity, but only E48bn. That's well down from the E95bn it took to calm nerves on Thursday. Stock markets jumped by 2-3% in response. But the authorities' longer-term strategy looks defective. Last week's liquidity problems were caused by a sudden end of excessively easy credit conditions, but central bankers try not to pay much attention to financial markets. Instead, the ECB, the Fed and its peers aim at low consumer price inflation. No central bank explicitly considers asset price inflation.
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